EoU scheme is full of holes: CAG

Data on total number of export-oriented units inconsistent, incomplete and unreliable, reports Gaurav Choudhury.

The government may be losing thousands of crores in revenues on account of the export-oriented unit (EOU) scheme in terms of foregone duties without fulfilling the scheme's objectives because there are several risks in its implementation which have not been mitigated, the Comptroller and Auditor General (CAG) has warned.

The total revenues in waived duties foregone by the government during the 1997-98 to 2004-05 period on account of the EOU scheme was Rs.37,384 crore. However, the CAG has remarked that macro data regarding total number of EOUs approved, those functional and duty foregone was “inconsistent, incomplete and unreliable”.

“As a result, there was minimal assurance that the units were monitored by the departments to ensure that these met the objectives of their formation and functioned withing the existing norms and regulations," the CAG said in a report on customs, central excise and service tax receipts for 2005-06.

It said that there was a need to “re-verify and reconcile” the number of units approved, functional or closed to effectively monitor the functioning of these units “so that timely and effective action could be taken for effecting recoveries, wherever due”.

There are also differences between the export performance figures as recorded by the revenue department and the development commissioners (DCs) in the commerce ministry. In fact, the performance was inflated or overstated in the records of DCs that formed the very basis of their evaluation, the CAG said.

“Accordingly, the risk of incorrect decisions based on inflated export performance was left unmitigated. The government should ensure that export performance evaluation of EOUs is done only on the basis of customs records and no on annual and quarterly performance reports ( APRs and QPRs) submitted by EOUs, as ports are the point of exit of exported goods”, it said.

The CAG has also underlined the need to strengthen the internal control mechanism and coordination between the commerce and finance ministries to ensure that EOUs achieve their prescribed value addition.

In a separate report on direct taxes, CAG has pointed out several cases including those involving Reliance Industries Limited (RIL), Hindustan Coca Cola Beverages (P) Ltd., Bank of Baroda and Indian Overseas Bank (IOB) among others where underassessment of income and incorrect depreciation allowance were reported.

A HCCB spokesman said “these depreciation allowances were as per the law and is under appeal". RIL officials declined to comment.